July 13, 2010
Authored by: Erika Labelle
The IRS recently decided, in PLR 201027015, that a taxpayer who directs her credit card “rebates” to a charitable organization is not required to include the amount in gross income and is entitled to a charitable deduction.
The facts are simple: taxpayers make purchases using their credit cards and as a result of the purchases, they earn “rebates.” These rebates equal 1% of the taxpayer’s purchases, and the taxpayer can either receive cash back or direct the cash to a charitable organization. The IRS holds that these rebates are not includable in the taxpayer’s gross income becase these “rebates” are adjustments to the purchase price paid for the item. The problem is: what item?? Presumably the taxpayer purchased several items from several different retailers. These facts are clearly different from the cell phone company who charges “$50” for my phone by making me pay $200 up front and requiring me to mail in a form to secure my $150 “rebate.” Clearly that is a purchase price adjustment. But is it the same as a credit card rebate?
To add additional confusion, the IRS is clear that charitable deductions are not allowed in similar circumstances. For example, a donation of your frequent flier miles will not yield a charitable deduction. A donation of your credit card points, redeemable for various merchandise, cash, or gift cards, are not eligible for a charitable deduction. Not sure how either of these are different from credit card “rebates” – but why argue with the IRS – after all, I get a tax deduction and I never have to include an amount in income! What a deal!
So where do we go from here? Well, bad news first: PLRs are not actually law and they only apply to the taxpayer who requested the ruling. The upside? Maybe the IRS is starting to feel a little more charitable these days.